We often talk about the benefits of an online savings account but it may not be for everybody.
Online savings accounts seem like a great deal, but despite the potential perks, there is a downside that you must be aware of. At first glance, stashing your money online seems great. The interest rates are higher than at your local bank, not to mention that you can open an account within minutes and in your pajamas. But after dealing with a few issues recently, I list a few potential pitfalls for you to consider:
Restrictions on Your Cash
Some online banks pose a transfer limit on withdrawals. Not the six withdraws per month mind you. A dollar amount limit. Usually, this isn’t a problem but when I needed to withdraw for my down payment, it added unnecessary hassle. No worries, the customer service representative said. All I had to do is wire the money out. It’s $20 all right, but that’s actually not worst surprise. Since there was no official form, they had me write a letter stating what I needed, signed and fax to their department so someone from the transfer department can get back to me. It took 48 hours for a representative to get back to me, and then another couple hours for the money to be wired. Luckily, I didn’t start the process last minute.
Account Restrictions and Limitations
You may be excited about opening an account, but don’t forget to read the fine print. Some online savings accounts will not permit you to even open an account unless you have a certain minimum balance. Others won’t give you the highest rate unless you maintain a certain balance, and not every bank even talks about their special rate offering.
When I was trying to finalize my loan, the loan officer wanted a verification of deposit on one of my online accounts. Usually, it’s a simple process that the banks handle amongst themselves, but Discover Bank told my loan officer that they need my written authorization to give another bank my balance. Security… seems like a good thing at first. But when I called them to get a confirmation receipt after I faxed them the authorization, the bank indicated that they weren’t able to fax over Bank of America’s official form because they do not send over this information through the fax. Instead, they will have to mail the document, which takes 10 business days. No overnight service either. Snail mail only. Sorry.
Online Only Interface
The lack of a physical bank location may seem like a blessing when it is 2 AM and you want to do some financial transactions, or after you’ve waited in line and dealt with one too many surly tellers and the customer in front of you in the bank line wanting $100 in quarters while you wait your turn. However, the lack of a physical bank branch can be a huge downside to online banking.
First, there may be no one for you to turn to for help. Customer service for online banks is often restricted to emails, online chats, and phone calls. Phone reps are hopefully helpful, but of course there is no guarantee that the voice on the other end of the line will be able to answer your questions or alleviate account concerns. Remember my snail mail incident? Getting the fax over and then having them mail me a document would have been unnecessary if I could actually go to a branch.
Most people know this, but note that the only way to access your cash is through electronic means. Make sure you know how long the process takes from requesting your cash to receiving it. If you are keeping your emergency money in an online savings account and it will take a week or more to actually receive the cash, how useful will it be to you in the event of a true emergency? This is a savings account, and you should not need to make continuous withdrawals. Still, it is useful to know what the process entails should the need arise.
Your Comfort Level
Ultimately, the issue of whether an online bank account is right for you depends on your comfort level. If you prefer to exist in an online world and are comfortable with the terms offered by online banks, online accounts can be a great investment opportunity for you. Just be certain that you really evaluate all aspects of the decision, including the potential downsides to online savings accounts, before being blinded by the larger-then-local interest rates.
Do You Think Online Savings Accounts are Right for You?
Though these online banks caused more than a fair bit of stress with my loan, I continue to be a customer. The rates are higher, and I’m very comfortable with online only systems. If you use these accounts though, make sure you completely understand how you will be able to access your cash in the event of a true emergency. I had 45 days to figure all this out for my loan, but many events happen much more quickly.
Don’t get caught off guard.